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How Strategic Is Treasury?

Survey examines changing roles and responsibilities of treasury functions, and how some treasurers have come to be key decision-makers in areas like tax, investor relations, and M&A.

When the Association for Financial Professionals (AFP) surveyed corporate finance professionals in 2011, 81 percent of respondents said the treasury function’s role had become more strategic over the past five years. That trend shows no sign of abating. In the “2014 AFP Strategic Role of Treasury” survey report, released today by the AFP and Oliver Wyman, 84 percent said treasury’s role has expanded again. And 83 percent expect their treasury team to become even more strategic in the next half-decade.

The latest survey explored exactly what treasury is doing these days, and the answers to those questions—especially among large companies—indicate why more and more consider the word “strategic” to apply to the treasury function. The activities in which the largest proportion of respondents said their treasury function plays a lead role are fairly predictable: bank relationship management, borrowing, and investing (see Figure 1, below). More than half of treasury teams, and nearly two-thirds of those in large organizations, also have lead roles in financial risk management and counterparty risk analysis.

Treasury is also heading up some efforts that did not traditionally fall under the function’s purview. Twenty-eight percent of respondents said their treasury team has taken a lead role in investor relations, 26 percent in mergers and acquisitions, 28 percent in business continuity planning, and 12 percent in accounting and SEC compliance.

Likewise, when asked to rate the importance of their treasury department to certain corporate activities, 91 percent said treasury is "important" or "very important" in their company’s cash management; 92 percent said the function is important or very important in banking; and 81 percent said it’s important or very important in foreign exchange risk. But nearly a third said treasury plays an important (14 percent) or very important (15 percent) role in taxes, and nearly as many said treasury has an important (16 percent) or very important (11 percent) role in supply chain financing.

In many respects, treasurers in large organizations are expanding their roles more quickly than those in smaller companies. Sixty-two percent of respondents in companies of every size indicated that cash management and forecasting is a key area of focus for their treasury function in the next two years. But those in larger companies are more likely to also give priority to financing and capital allocation (51 percent of respondents in large companies, vs. 39 percent in smaller companies); mergers and acquisitions/investment banking (18 percent, vs. 11 percent for smaller companies); and credit syndicate renewal (14 percent, vs. 8 percent for smaller companies).

The result of all these trends: Treasurers are considered to be C-level executives in many organizations. Thirty-seven percent of all respondents said their company’s treasurer is a member of the executive committee or the C-suite. That number is higher for organizations with less than $1 billion in annual revenue (43 percent) than for organizations with more than $1 billion in revenue (32 percent). But even treasurers who aren’t in the C-suite have the attention of those who are.

When asked to rate the treasury team’s access and visibility to the executive committee/C-suite, on a scale of one to five where one is “poor” and five is “excellent,” nearly three-quarters of respondents selected either four or five. And in 55 percent of companies, and 58 percent of public companies, the treasury function formally measures—and communicates to executive management and the board about—its contribution to company performance.

The AFP survey also explored the question of why treasurers are becoming more strategic. The majority of respondents pointed to the increasing importance of cash management and liquidity to organizations’ senior managers, as well as the fact that senior management and the board are constantly seeking greater visibility into liquidity and risk exposures. (See Figure 2, below.)

As the role of the treasury function continues to shift, companies are using a variety of metrics to gauge its performance. Borrowing costs and banking expenses are both popular choices, cited by 58 percent and 51 percent of AFP survey respondents, respectively. For 55 percent, liquidity targets rank in performance judgments, and 49 percent of treasurers (54 percent of those in large companies) are gauged on the effectiveness of their risk management programs. But within large companies, the most popular of all treasury-performance metrics is capital structure support, selected by 62 percent of respondents from companies over $1 billion in revenue but only 29 percent of those in smaller organizations.

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